Winmark (WINA -0.72%), the innovative retailer of used toys and clothing best known for its Once Upon a Child and Plato's Closet stores, is seeing some stock selling this morning as its shares tumbled 2% through 12:45 p.m. ET.
And why is this happening? It's never 100% certain, but my hunch is that investors may have been spooked by a recent article in The Wall Street Journal, which reported on weak spending within a key customer demographic that Winmark targets.
Image source: Getty Images.
What's ailing Winmark?
As the Journal reported Tuesday (online) and Wednesday (in print), "in-store and online purchases for 18- to 24-year-olds fell 13% year-over-year between January and April, according to market research firm Circana."
Revived payment obligations on student loans, plus an iffy job market and rising credit card pressures, are blamed for the decline in spending. And the Journal notes all of this is hitting sub-24 shoppers especially hard.
That's bad news for Winmark's Plato's Closet brand in particular, which targets tween-to-young-20s shoppers. It's worse news since the Journal says two categories where this demographic is spending much less are apparel (down 11%) and accessories (down 18%).
Is Winmark stock a sell?
Investors may be especially worried given Winmark's pricey stock, which sells for nearly $380 a share, and costs nearly 33 times trailing earnings, and about 30 times trailing free cash flow. Valuations like these require fast growth to justify, yet Winmark profits actually declined last year, and are expected to grow no more than 6% this year (and only 7% next year), according to data from S&P Global Market Intelligence.
Weakening consumer spending won't do anything good for those numbers, I'm afraid. Winmark stock is probably a sell.
